Peabody Energy announced it has received approval of its business plan by the company's debtor-in-possession (DIP) financing lenders. The business plan forms the foundation for the plan of reorganization that the company expects to submit before the end of the year. Both the business plan and the plan of reorganization are essential milestones toward Peabody's successful emergence from Chapter 11 bankruptcy protection.

Peabody Energy President and Chief Executive Officer Glenn Kellow noted that Peabody has opportunities to not only survive but to thrive for the long-term benefit of its many stakeholders, despite operating in an industry with unprecedented challenges of late.

"We are pleased to advance a realistic plan that recognizes both the challenges and opportunities related to the company and industry," said Kellow. "As Peabody focuses on emerging stronger from the Chapter 11 process, we look to capitalize on our strengths, build upon our positive operating performance, reduce our overall debt and fixed charges, and pursue additional improvements for long-term success. Peabody has a strong asset base and skilled workforce intent on creating maximum value in an essential industry."

As part of the business plan, the company detailed its current position, operational highlights, key drivers of future value creation, financial overview and anticipated future state:

Current Position: Peabody operates mines and mining complexes in eight states and controls 6.3 billion tons of coal reserves in the United States and Australia, with core sectors including the Powder River Basin (PRB), Illinois Basin and Asia-Pacific metallurgical and thermal coal. Within the coal industry, Peabody has significant diversity across regions, demand centers, products and customers, serving thermal and metallurgical coal customers in 25 countries.

Operational Highlights: Following a company-best safety incidence rate in 2015, Peabody's safety performance is 14 percent improved year-to-date in 2016. Year-to-date, U.S. operations demonstrated 8 percent cost-per-ton improvements since 2012 despite 35 percent lower volumes. Peabody's gross margins in the PRB over the past two full years average 26 percent and compare favorably to a 15 percent average for other public PRB producers. In Australia, Peabody's capital investment has declined more than 90 percent from the peak in 2012 while costs per ton declined 47 percent.  And Peabody's first quarter selling and administrative costs have achieved a level of 3.3 percent of revenues – best among U.S. coal peers even with Peabody's global nature.

Key Drivers of Future Value Creation: Looking forward, Peabody has outlined multiple drivers of future value creation:

• Continued pursuit of safe, low-cost operations. Key elements include a constant drive down the cost curve; protection of the company's social license to operate; and excellence in coal mine restoration.
• Emphasis on the best products, regions and customers within an essential industry.
• Capital discipline with a sharp return orientation.
• Management team with major value focus.
• A leading voice for responsible mining, energy access and clean coal technologies.

Industry Assumptions: Regarding U.S. fundamentals, Peabody's business plan assumes U.S. coal demand for electricity generation grows a total of 20 to 25 million tons between 2016 and 2021, with impacts from announced and expected plant retirements offset by increased capacity utilization at remaining plants.  Within Asia/Pacific, metallurgical coal demand is expected to increase by 50 to 55 million tonnes between 2016 and 2021, driven by China and India.  Seaborne thermal demand is expected to rise by 50 to 60 million tonnes as some 375 gigawatts of new generation capacity is added, primarily in the Asia-Pacific region.

Financial Overview: Over the five-year business plan period, the company contemplates total sales volumes rising from 168 million tons in 2016 to a range of 194 to 197 million tons per year between 2018 and 2021. Revenues are anticipated to be largely stable between $4.4 billion and $4.6 billion, while EBITDAR is expected to rise 60 to 65 percent from 2016 levels by the end of the business plan.  Financial performance is highly sensitive to changes in assumptions as described in the plan.

Future State: The business plan contemplates a desired future state that incorporates a diversified platform capable of generating positive cash flows across all business cycles and generates returns to support future growth initiatives.

Within the Americas, this includes an unmatched portfolio of assets in the PRB and Illinois Basin that continues to create value in the face of reduced coal demand. Within these basins, the company, among other things, looks to drive lower costs through synergies and provide greater value, whereas in the Southwest and Colorado, the company anticipates managing for cash generation.

In Australia, the business plan reinforces that both metallurgical and thermal sectors are core to Peabody. The company anticipates a smaller but more profitable platform focused on high-quality products and/or top-tier assets to capitalize on higher growth in Asia. The business plan notes that the thermal segment margins average 17 percent over the plan, while margins at metallurgical mines point to the need for further optimization.  The business plan contemplates a reduction of metallurgical coal volumes over the five-year life of the business plan, assuming a strong Australian currency and no major uplift in product pricing.  As described in the business plan, future plans are dependent on factors including industry conditions and the success of Project Excellence improvement initiatives.  In addition, in the ordinary course of business, the company continues to review and optimize the asset portfolio.  In the first half of 2016, the company completed the sale of undeveloped tenements, and in late 2016 the company intends to follow through on placing the Burton Mine in care and maintenance, as previously announced.

Kellow reinforced that the company will continue to progress through the Chapter 11 process as matters essential to a plan of reorganization are discussed with creditors in coming months. "Peabody clearly has much work to do prior to emerging from Chapter 11 and, longer-term, to create significant value," said Kellow. "We are highly confident that we have the assets, the team and the operational successes to build upon as we create a stronger Peabody."

Peabody Energy is the world's largest private-sector coal company and a Fortune 500 company. The company's business plan is available here.

Also see: Peabody Energy Files Chapter 11, Citigroup Arranges $800MM DIP Loan